Moosomin business finds solution to complicated rate increase
February 15, 2024, 9:56 am
Ryan Kiedrowski, Local Journalism Initiative Reporter
When Heather Truman opened her mail last fall, one letter in particular piqued her interest. From that seemingly innocuous notice, Truman learned of a payment brand fee increase and an upcoming change in how those fees will be reflected on her monthly statements going forward.
Now the average business owner might be tempted to dump the letter into the nearest recycling bin without a second thought, but there were some questions left on Truman’s mind.
“As a business person, let me remind you that they’re charging PST and GST on money,” she said. “It’s not a product, this is a percentage of what I pay Chase Paymentech. Now others are going to have Moneris or whatever company they deal with, but they’re charging tax on money. It doesn’t make sense and they’re getting away with that.”
Last March, proposed amendments in the Federal Budget changed the Excise Tax Act where some services offered by payment card network operators would be now subject to HST. This new charge would not be recoverable by the companies and affect fees that places like Chase and Moneris would be charged. The end result meant business owners would now be left to pick up the tab with a 13 per cent payment brand fee increase.
In response, the owner of Sew Creative & Interiors in Moosomin decided on offering an incentive to her customers for choosing to pay with cash—a system Truman feels strongly ought to remain in place before it’s lost.
“I started about two weeks after I got the letter, because I thought, okay, I don’t want to pay the government 11 per cent in taxes, I will give 10 per cent off to my customers and that’s when I started promoting cash,” she explained. “I’ve had a lot of people say, ‘we’ve got to keep cash going.’
“My big thing is, let’s keep cash going. The minute we give up cash, it’s going to be useless.”
Truman points to changes in purchasing habits emerging from the Covid-19 pandemic which promoted using touchless payment methods as opposed to handling cash.
“Another kicker from Truman’s letter detailed how, instead of single brand fees being noted on her monthly statement, a single adjustment reflecting the updated rate would now be shown.
In comparing her statements before and after the change in reporting, Truman noticed only a few dollars being charged under the new plan. She chalks that result up to the decision to promote cash, but for other businesses, the new rates could translate to hundreds of dollars of added expenses.
Govt. responds
In early Dec. 2023, the federal government announced an agreement with Visa and Mastercard that intends to lower transaction fees for small businesses. Touted to assist more than 90 per cent of credit card accepting businesses in Canada to qualify for lower rates, the changes hope to reduce interchange fees by 27 per cent, saving eligible small businesses a total of $1 billion over five years.
“This is great news for Canadian small businesses across the country, which will collectively stand to benefit from savings of about $1 billion over the next five years,” said Rechie Valdez, Minister of Small Business, in a media release. “With these new agreements in place, our government is following through on our commitment to support small businesses that are facing higher costs because of inflation and increased interest rates. Reducing costs on small businesses will enable them to further invest in their business and its growth, while helping support their success now and into the future.”
Under the finalized agreement, qualifying small businesses could see a reduction in consumer credit interchange fees for in-store transactions to an annual weighted average rate of 0.95 per cent; online transactions would go down 10 basis points for reductions of up to seven per cent; and free resources would be offered regarding online fraud and cybersecurity. But the changes will not happen overnight as the new rates are anticipated to come into effect this coming fall.
Changing definitions
So how did this mess all start? Previously, Canadian business owners simply could not charge customers transaction fees to use their cards. It will illegal. The credit card companies would collect between one and three per cent on each transaction, and under the old regulations, the fees businesses faced were absorbed leaving a result of increased expenses and reduced profits.
In Oct. 2022, a lawsuit between Visa, Mastercard and a group of Canadian businesses began, resulting in businesses across the country now being allowed to charge up to 2.4 per cent of the transaction cost to the customer (except Quebec. Consumer protection laws still prohibit merchants from charging the credit card fees along to the consumer).
With that change, businesses began to realize a small amount of extra revenue. The question then became “are credit card surcharges taxable?”
Ultimately, it was found that credit card surcharges are not part of business revenue, but a payment for a service offered to consumers—the convenience of paying with a card. This means the surcharges actually land under the category of financial service payments, which are exempt from federal tax.
That’s where the special exception to the Excise Tax Act came in, making all credit card surcharges paid on or after March 29, 2023 subject to GST/HST.
Amid the flurry of changes from credit card companies, government and tweaking federal law, one may conclude Truman’s ‘discount for cash’ idea as a simple, clever solution to a complicated problem.
